The Fed’s plan to slow job creation and wage growth appears to finally be working, as U.S. private sector employment grew by much less than expected in October.

According to payroll processor ADP, the private sector added 113,000 jobs last month, far below the 150,000 economists were expecting. It followed a weak 89,000 hiring pace in September.

The bulk of the job gains in October were concentrated in the services sector, with education, trade and transportation, and finance leading the way.

Employment growth in manufacturing and construction was negligible.

ADP’s data showed that wages grew 5.7% on a 12-month basis, the smallest annual gain since October 2021. Job hoppers saw their annual pay increase by 8.4%, the smallest increase since July 2021.

While slower wage growth is bad for workers, it’s a welcome sign for the Fed.

The Fed is satisfied (for now)

After two days of deliberations, the Fed decided on Nov. 1 to keep interest rates on hold.

That didn't surprise analysts. “There’s very little shock factor in today’s rate decision,” Seema Shah, chief global strategist at Principal Asset Management, told CNN.

While it's too early to tell if it's a temporary stop or reversal, the central bank’s official policy statement has acknowledged that financial conditions are slowing the economy. According to Shah, that’s “potentially a signal that the Fed has minimal appetite to raise rates further.”

Of course, the Fed makes no guarantees one way or another. In his post-meeting press conference on Nov. 1, Fed chair Jerome Powell said: “The idea that it would be difficult to raise again after stopping for a meeting or two isn't right.”

The Fed has successfully brought inflation from a peak of 9% to below 4%, but it’s still worried about lingering cost pressures driving up the prices of services and labor.

That has to do with one overlooked measure.

ECI: An overlooked measure

One of the most important measures the Fed uses to track inflation is the employment cost index (ECI). Unlike ADP’s wage growth tracker, ECI calculates how wages change for the same mix of jobs.

Crucially, the ECI calculation doesn’t include average hourly pay, which is more easily influenced by layoffs of lower-income workers.

Wage growth measured by ECI slowed to 4.3% in the second quarter from a peak of 5.1% last year, but it remains well above the 3.5% level the Fed thinks is consistent with 2% inflation in the overall economy.

“Those wage increases are likely to keep inflation running above target,” said Andrew Hollenhorst, chief U.S. economist at Citigroup.

"For now, the Fed will remain on hold, but the evident upside risk to inflation means chair Powell and committee will keep potential further rate hikes on the table.”